Presently, banks and companies financing home loans are offering several customized payment options to suit various loan requirements of customers. While some options offer flexibility in repaying the loan, others are linked to various house construction stages. Moreover, some of these plans increase the capacity of the borrower to repay the loan along with giving some tax benefits.
There is an array of repayment plans available in the market presently, which borrowers need to analyse before taking a decision to take a loan as per his/her requirement. Let’s have a look at some of the major house loan repayment plans:
Step-Up Repayment Loan:
In this particular plan, the monetary growth of a borrower is directly linked with the repayment. This particular plan enables a borrower to take a higher loan amount in comparison to other taking a regular house loan.
This scheme is mainly useful for young people buying a house since it is expected that one’s income keeps increasing with age and seniority in his career. As a result, people pay lower EMIs in initial years by adjusting the loan as per their requirement and even after the EMI increases avail the same tax benefits.
Balloon Repayment Plan:
This plan is similar to the step-up repayment plan. In this option, one can start with paying very small instalment amounts in the starting of the loan term. In the subsequent years, the instalment amount commences to balloon up leading to a higher amount than normal-step up option.
Step- Down Repayment Plan:
This plan is mainly suitable for people who take a loan at an older age, probably senior citizens and people about to be retired in 1-2 years. In this plan the EMIs are higher in the starting years and then decreases in the subsequent years. This plan keeps in mind that loan repayment capacity reduces at a later stage due to reduced income and lower loan repayment helps keeping finances in control.
Tranche-Based Repayment Plan:
This repayment plan is essentially suitable for people buying property under-construction. Mostly, a borrower has to pay interest on the home loan based on the construction stage of the project till the project completion stage. This particular plan helps borrowers save on interest and is offered by a few banks and lenders. As per the capability of the borrower to pay interest, the instalments can be fixed for paying to the bank till the property is ready for possession. The minimum amount payable is the interest on the total loan amount. Any amount over this fixed amount goes towards the principle. This way the borrower saves on the tenure of the loan by repaying the loan faster.
Flexible and Fixed Instalment Plan:
Flexible Instalment Plan – In this plan, in the initial years one has to pay a higher EMI but it decreases gradually in the subsequent years. This plan is good option for parents wishing to buy houses for their children. The parents can plan the loan in such a way that in the subsequent years when one retires or is unable to repay the loan anymore, the children can take over the loan and start repaying the same.
Fixed Instalment Plan – In this plan, for a certain period the EMI remains fixed, after which it gets adjusted as per the market rate. In the fixed tenure, the market conditions are unable to fluctuate the fixed rate. When the interest rates are expected to increase, fixed instalment plan benefits the borrowers. However, one needs to be careful about the loan opted, as many lenders keep a provision of swelling the fixed amount in their agreement.
Accelerated Repayment Plan:
In this particular plan, EMI amount can be increased as and when the borrowers have surplus money or as the disposable income increases. Another highly chosen option is to pay a lump sum amount to repay the loan. This enables one to repay the loan faster and helps in tax saving as well.
Although various banks and lenders offer you multiple loan options to choose from, it is good to do some research before choosing a loan option. Moreover, it is very important to carefully and patiently check the clauses banks/lenders have mentioned in their repayment plan agreement. Talking to existing customers of the loan will give you a fair idea of how easily you will be able to cope up with the loan against your present income.
Source: Economic Times